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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: PCSS who wrote (95763)	3/6/2002 3:42:16 PM
From: Elwood P. Dowd	Respond to of 97611

ISS Report Evens the H-P-Compaq Merger Fight By Tish Williams Senior Writer 03/06/2002 03:21 PM EST We now return to your regularly scheduled proxy fight. Institutional Shareholder Services has spoken in favor of Hewlett-Packard (HWP:NYSE - news - commentary - research - analysis) management. But its 25-page report is far from the final word on the proposed Compaq (CPQ:NYSE - news - commentary - research - analysis) merger, and is instead just one of many opinions institutional investors weigh as they make up their minds on a controversial merger between two technology giants. In other words, it's still anybody's ballgame. While an ISS decision to oppose the merger would have made the odds almost insurmountable for H-P CEO Carly Fiorina, ISS' decision to back management nearly levels the field. At this point the merger will be decided by the ability of both sides and their respective proxy agents to sway the undecided majority of votes. Let the games resume. The ISS report goes out to over 20% of H-P stockholders, giving it a critical ability to offer an opinion as weighty as that of the Hewlett and Packard families, which control 18% of shares. Yet the ISS ruling does not directly translate to votes in favor of the merger, except in the case of Barclays Global Investors. Barclays previously announced that it would adopt the ISS stance when it votes its 3.1% stake, because its CEO, Patricia Dunn, is on the H-P board. Wednesday morning, Wall Street analysts estimated that around 9% of H-P shares were held by index funds -- passive investors some analysts believe would follow the ISS' recommendation -- which would finally give merger supporters a formidable presence at over 12% in favor of the deal. But Barclays spokesman Tom Taggart protests the idea that an institutional investor that holds corporate shares in an index fund would simply mimic the ISS posture because an independent decision would take too much effort for a passively invested fund. Even though Barclays will sit out heavy-duty analysis in making its H-P decision, Taggart insists, "We don't always agree with the ISS or with management. We are not afraid to disagree. Our overarching policy is to do what is in the best economic interest of our investors. Certain policies put forth by management are not truly in the best economic interest of investors, and we're not afraid to vote against them." Indeed, in a flurry of Wednesday morning reports, Wall Street seemed to recalibrate the odds more in H-P's favor, but stopped short of declaring the merger a go. Charlie Wolf at Needham & Co. handicapped the success probability at 55% to a 45% chance of failure, while Robertson Stephens' Eric Rothdeutsch put evenly matched 50-50 odds on the deal going through. Many analysts continued to emphatically oppose the merger on the basis that it would not provide the competitive advantages H-P has projected. ISS' recommendation is not always followed by its subscribers, and the company is not known as a definite indicator in the outcomes of proxy fights. About 18% of H-P shares are owned by company insiders, executives as well as employees who may be put off by the proposed 15,000 jobs that would be eliminated should the merger go through, 10% of the workforce. Additionally, pundits are unsure whether individual investors would follow company management in this highly unusual case where members of the company's founding families vocally oppose the deal. Hewlett-Packard shares dropped 2% to $20.23 in Wednesday trading, while Compaq shares climbed 3% to $10.91.